Haehnlen v. Drayton

• Decision Date: 28 December 1911
• Docket Number: 15 (1,561).
• Citation: 192 F. 300
• Parties: HAEHNLEN et al. v. DRAYTON et al.
• Court: U.S. Court of Appeals — Third Circuit

192 F. 300

HAEHNLEN et al. v. DRAYTON et al.

No. 15 (1,561).

United States Court of Appeals, Third Circuit.

December 28, 1911

Charles L. McKeehan and Joseph S. Clark, for appellants.

George Quintard Horwitz, John C. Bell, and John G. Johnson, for appellee receivers.

George Quintard Horwitz and John G. Johnson, for appellees Disston and others (bondholders' committee), Drayton, Atlee, and Richards.

Before GRAY and LANNING, Circuit Judges, and CROSS, District Judge.

CROSS District Judge.

On November 1, 1909, the Holmesburg, Tacony & Frankford Electric Railway Company, which owned and operated a trolley line in the city of Philadelphia, defaulted in the payment of interest upon its mortgage bonds, and on November 10th of that year, W. Heyward Drayton, 3d, J. Ernest Richards, and George B. Atlee, severally recovered judgments against said railway company. On November 11th Drayton filed a bill of complaint against the company 'upon his own behalf and on behalf of all other parties in like interest,' substantially alleging, among other things, that the company was incorporated in 1890; that it constructed and operated a railway in the city of Philadelphia; that on May 1, 1895, it issued $400,000 of 5 per cent. bonds secured by a first mortgage upon its railway lines and property, real and personal, to the West Philadelphia Title & Trust Company, as trustee; that on September 18, 1906, it guaranteed the principal and interest of $650,000 of first mortgage 5 per cent. bonds of the Philadelphia, Bristol & Trenton Street Railway Company; that on August 2, 1909, all of the property of said last-mentioned company was sold under foreclosure that there remained due on each bond, after applying the net proceeds of sale to said bonds, the sum of $408; that the complainant had recovered, upon said guaranty, a judgment against the defendant, the Holmesburg, Tacony & Frankford Electric Railway Company; that the earnings of that company were insufficient to meet its current expenses and fixed charges; that interest which became due November 1, 1909, on its mortgage bonds, was unpaid; that it was insolvent, and had no funds on hand to meet its indebtedness accrued and to accrue; that it had other liabilities which would shortly be reduced to judgment; that George B. Atlee and J. Ernest Richards had also recovered judgments against the defendant which there were no funds to meet; that other creditors were pressing the defendant and threatened to levy attachments upon its rolling stock and supplies; that the earnings of the defendant company were not sufficient to meet the operating expenses and fixed charges already accrued and to accrue, and that individual creditors will assert their claims in different courts, attempts will be made to secure judgments and priorities, levies and attachments will be made upon the rolling stock, materials, and supplies indispensable to the operation of defendant's continuous line of railway, and the business of the defendant as a common carrier will be interfered with and prejudiced, and the defendant corporation prevented thereby from properly discharging its duties to the public as a common carrier of passengers over and along its said continuous line of railway, and the public greatly inconvenienced and damaged resulting in irreparable loss and injury to all the creditors and holders of the stock and bonds of the said company unless the trust estate be preserved as a valuable single trust fund by adequate judicial protection by means of the intervention of a receiver, until such time as adequate financial arrangements can be effected, which, under the financial conditions existing up to the present time, have been practically impossible to accomplish. That under these circumstances the intervention of a court of equity by the appointment of a receiver or receivers to take charge of and protect the property of the said defendant company, to continue its business and to account for the income thereof until the final decree of the court in the premises is imperatively required. Wherefore, as your orator is without full and adequate remedy at law and can only have relief in equity, he files this bill of complaint in behalf of himself and all other creditors of defendant corporation, and prays for equitable relief as follows:

'That the rights of your orator and all the other creditors of the said defendant company, both secured and unsecured, in and to the property of the said defendant company, may be ascertained and protected; that the court will administer the estate constituting the entire railway and property of the defendant, and for such purpose will marshal its assets and ascertain the respective liens and priorities existing upon each and every part of the said lines, and the amounts due, and the rights, liens, and equities of each and all the creditors of said defendant company.'

Following the above are prayers for an injunction forbidding interference with the receiver, and for the issuance of process against the defendant company.

Simultaneously with the filing of the foregoing bill of complaint, the defendant filed an answer admitting the facts set forth in the bill, and on the same day receivers were appointed, with general powers and without reference to any special rights of the complainant, who took possession of its assets and operated the road from November 11, 1909, to June 16, 1910. On the 24th of January, 1910, a bondholder's committee, representing less than a majority of the mortgage bonds of the defendant, intervened as party defendants and filed a cross-bill, without notice, however, to the trustee under the mortgage, or to the remaining bondholders, to foreclose the mortgage and impound the income of the road from that date. On the same day the receivers, Drayton and the Holmesburg, Tacony & Frankford Electric Railway Company, answered the cross-bill admitting its allegations, and thereupon a decree of foreclosure and sale of the property of the railway was entered. Four days afterwards the trustee under the mortgage filed a petition praying that the decree thus entered might be vacated, and on the same day a committee representing a majority of the bondholders filed a petition asking for the discharge of the receivers.

The court permitted the cross-bill to stand, ordered thedecree to be vacated, and allowed the trustee and the last-mentioned bondholders to intervene therein as complainants, without being bound by its admissions as to the right of Drayton and the other judgment creditors to the income prior to January 24, 1909. Moreover, the receivers were continued in office. Subsequently a new decree was prepared, in which the counsel of all of the different interests joined, under which a sale was subsequently made by the trustee named in the mortgage rather...